Australia's Dollar Gains on Yield

The Australian dollar climbed to a three-month high as easing credit concerns prompted investors to buy higher-yielding assets., Bloomberg 2/25/2008 5:54:29 PM

Australian dollar was the second- and fourth-best performers among 16 most-active currencies against the U.S. dollar today as Standard & Poor's said the world's two largest bond insurers retained their AAA credit rating. Traders increased bets the Reserve Bank of Australia will raise interest rates next week, encouraging investors to resume carry trades.

Australia's dollar advanced to 92.94 U.S. cents, the most since Nov. 9, before trading at 92.90 cents from 92.42 cents late in Asia yesterday. It also rose to 100.46 yen, the strongest since Nov. 15.

Australia's central bank raised its key interest rate to an 11-year high of 7 percent this month. High rates make tAustralian dollar popular targets for so-called carry trades.

In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the borrowing and lending rate. The risk is currency market moves erase those profits.

Australia's dollar also advanced the most against the yen after S&P said it is unlikely to downgrade MBIA Inc., the world's largest bond insurer. Ambac Financial Group Inc., which ranks second to MBIA, is still being reviewed for a possible downgrade, S&P said.